Study On Dynamic Management Of China's Foreign Exchange Reserve

Since the foreign exchange system Reform in 1994, China's Foreign Exchange Reserve expanded rapidly. Up to the end of 2006, it has exceeded 1000 billion dollars and reached 1066.3billion dollars .On one hand, this enhances our capacity of external payment, adjustment of balance of payment, interference in foreign exchange market; On the other hand, huge amount of Foreign Exchange Reserve brings some adverse influences on the economy. With the expanding of foreign exchange reserve, these adverse influences become more and more obvious .We must build an aim system of dynamic management of Foreign Exchange Reserve to change this situation. In my paper, this system should include calculation of the moderate quantity, selection of the optimized currency structure of Foreign Exchange Reserve and application of adjustment methods to realize the dynamic management. As to the calculation of moderate quantity, it is analyzed by ratio method in aspect of supply and demand of Foreign Exchange. Result showed that the quantity of our Foreign Exchange Reserve was a bit higher. As to the selection of the currency structure of our Foreign Exchange Reserve, it has finally been determined by considering the influence of our trade structure, external debt currency structure, foreign business investment structure, profits and risk of exchange currency, arrangement of exchange rate. According to the analysis result, the way of controlling the quantity of our foreign exchange reserve and some reverent policy suggestions are proposed.